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Why Shares Of CG Power Tumbled The Most Since Listing

Shares of CG Power and Industrial Solutions Ltd. fell as much as 32.3 percent—its worst single-day decline since listing—after the company wrote off loans to third parties and adjusted loans to promoters against future royalty payments.

The company’s net loss widened to Rs 150 crore in the quarter ended December from Rs 28 crore a year ago, the power equipment maker said in an exchange filing. That was due to an exceptional loss worth Rs 117 crore, mainly contributed by Rs 108-crore write-off against third-party receivables—or payments from clients.

CG Power said the write-off was as a result of its “conservative accounting practices”. “Whenever it receives payment from the debtors, the amount will be reversed,” the Mumbai-based company said in a conference call post its third-quarter earnings. It expects another potential write-off worth $5-7 million (Rs 35-50 crore) in the coming quarters.

Separately, CG Power had receivables worth Rs 760 crore from the promoters, Avantha Group, as of September 2018. That has now fallen to Rs 270 crore after the promoters repaid Rs 80 crore and the remaining Rs 411 crore was adjusted against the future royalty payable to them. CG Power expects the remaining Rs 270 crore to be repaid by May this year. The company also lowered its royalty payout to promoters to 0.5 percent of revenue from 1 percent earlier.

The stock recovered some of its losses to end the day 29.8 percent lower, the biggest fall since 2009, according to Bloomberg data. That compares with nearly 0.4 percent drop in the benchmark NSE Nifty 50 Index.

Hungary Operations

The pending completion of sale of CG Power’s loss-making Hungary business is still an overhang for the company. The sale, which was expected to complete nearly two years back, has been eating into its profits. The deal, the company said, was pending as the buyer—Ganz Villamossagi and Alester Holdings—had not provided letters of comfort to banks related to the transfer of debt.

CG Power now expects the deal to be completed by April this year.

Pledged Shares

Investors, in the conference call, raised concerns over sale of pledged shares of the promoter group.

The management, however, clarified that none of the pledged shares have been sold by the lenders. To be clear, the promoter group’s entire shareholding remains pledged since March 2017.